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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
Commission file number: 001-13780
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M & F WORLDWIDE CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 02-0423416
- ---------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 EAST 62ND STREET
NEW YORK, NEW YORK 10021
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip code)
(212) 572-8600
Registrant's telephone number including area code
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
As of November 14, 2002, there were 19,621,271 shares of the Registrant's
Common Stock outstanding.
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M & F WORLDWIDE CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations...............................................2
Condensed Consolidated Balance Sheets.........................................................3
Condensed Consolidated Statements of Cash Flows...............................................4
Notes to Condensed Consolidated Financial Statements..........................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........16
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................25
Item 4. Controls and Procedures......................................................................25
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................................26
Item 2. Changes in Securities........................................................................28
Item 3. Defaults Upon Senior Securities..............................................................28
Item 4. Submission of Matters to a Vote of Security Holders..........................................28
Item 5. Other Information............................................................................28
Item 6. Exhibits and Reports on Form 8-K.............................................................28
SIGNATURES...........................................................................................29
CERTIFICATIONS.......................................................................................30
1
PART 1
ITEM 1. FINANCIAL STATEMENTS
The financial information herein and management's discussion thereof,
include consolidated data for M & F Worldwide Corporation (the "Registrant"),
and its subsidiaries.
M & F WORLDWIDE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2002 2001 2002 2001
---------- ---------- ---------- ---------
Net revenues
Panavision
Rental income $ 41.9 $ 29.7 $ 113.5 $ 66.4
Sales and other 10.6 8.3 27.9 14.8
Mafco Worldwide 22.1 23.5 73.7 74.8
---------- ---------- ---------- ---------
Total revenues 74.6 61.5 215.1 156.0
Cost of revenues
Panavison
Cost of rentals 22.3 20.1 65.8 37.8
Cost of sales 6.2 4.6 16.7 8.1
Mafco Worldwide 11.3 12.2 36.5 39.4
---------- ---------- ---------- ---------
Total cost of revenues 39.8 36.9 119.0 85.3
---------- ---------- ---------- ---------
Gross profit 34.8 24.6 96.1 70.7
Selling, general and administrative expenses 17.4 19.7 54.2 40.7
Shareholder litigation settlement, net 3.3 4.5 1.3 4.5
Loss (gain) on pension reversion - 0.1 - (10.3)
---------- ---------- ---------- ---------
Operating income 14.1 0.3 40.6 35.8
Interest expense, net (8.5) (10.9) (27.2) (21.2)
Foreign exchange gain 0.6 0.6 0.5 0.4
Refinancing expense - - (4.5) -
Other income (loss), net 0.1 0.2 0.5 (0.1)
Minority interest - accretion on Panavision Series B Preferred Stock (1.3) - (1.3) -
---------- ---------- ---------- ---------
Income (loss) before income taxes and extraordinary loss 5.0 (9.8) 8.6 14.9
(Provision for) benefit from income taxes (3.0) 1.6 (5.0) (10.1)
---------- ---------- ---------- ---------
Income (loss) before extraordinary loss 2.0 (8.2) 3.6 4.8
Extraordinary loss, net of taxes - - - (0.2)
---------- ---------- ---------- ---------
Net income (loss) 2.0 (8.2) 3.6 4.6
Preferred stock dividend (0.1) - (0.3) (0.1)
---------- ---------- ---------- ---------
Net income (loss) available to shareholders $ 1.9 $ (8.2) $ 3.3 $ 4.5
========== ========== ========== =========
Basic and diluted earnings (loss) per share:
Common stock-undistributed earnings (loss) before extraordinary loss $ 0.07 $(0.31) $ 0.13 $ 0.20
Common stock-undistributed extraordinary loss - - - (0.01)
---------- ---------- ---------- ---------
Total common stock $ 0.07 $(0.31) $ 0.13 $ 0.19
========== ========== ========== =========
Preferred stock-distributed earnings $ 0.01 $ 0.01 $ 0.04 $ 0.02
Preferred stock-undistributed earnings (loss) before extraordinary loss 0.07 (0.31) 0.13 0.20
Preferred stock-undistributed extraordinary loss - - - (0.01)
---------- ---------- ---------- ---------
Total preferred stock $ 0.08 $(0.30) $ 0.17 $ 0.21
========== ========== ========== =========
Basic weighted average shares outstanding:
Common stock 19.6 20.6 19.6 20.0
Preferred stock 6.9 6.2 6.9 3.7
---------- ---------- ---------- ---------
Total shares outstanding 26.5 26.8 26.5 23.7
========== ========== ========== =========
Diluted weighted average shares outstanding:
Common stock 19.8 20.6 19.7 20.0
Preferred stock 6.9 6.2 6.9 3.7
---------- ---------- ---------- ---------
Total shares outstanding 26.7 26.8 26.6 23.7
========== ========== ========== =========
See Notes to Condensed Consolidated Financial Statements
2
M & F WORLDWIDE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 27.1 $ 6.2
Accounts receivable (net of allowances of $1.7 and $1.7) 42.1 35.6
Inventories 63.6 62.3
Prepaid expenses and other current assets 12.4 13.2
------------- ------------
Total current assets 145.2 117.3
Property, plant and equipment, net 244.7 255.3
Goodwill, net 332.9 331.7
Other intangible assets, net 176.9 175.8
Deferred tax asset 0.4 0.4
Pension asset 13.9 13.2
Other 18.3 18.4
------------- ------------
Total assets $ 932.3 $ 912.1
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 0.9 $ 1.5
Accounts payable 8.2 14.1
Accrued liabilities 44.6 33.9
Current maturities of long-term debt 309.5 41.8
------------- ------------
Total current liabilities 363.2 91.3
Long-term debt 185.0 501.6
Deferred tax liabilities 16.7 16.6
Other liabilities 12.4 6.7
Commitments and contingencies
Panavision Series B Pay-In-Kind Preferred Stock, $0.01 par value; 100,000 shares
authorized; 49,199 shares issued and outstanding at September 30, 2002
(liquidation preference of $1,000 per share plus declared and unpaid dividends) 50.5 -
Stockholders' equity:
Common stock, par value $.01; 250,000,000 shares authorized;
20,663,171 shares issued at September 30, 2002 and December 31, 2001 0.2 0.2
Preferred stock, liquidation value $6.50;
6,848,820 shares issued and outstanding at September 30, 2002 and December 31, 2001
(aggregate liquidation preference of $44.5 plus declared and unpaid dividends) 41.7 41.7
Additional paid-in capital 27.9 27.9
Treasury stock at cost
1,041,900 shares at September 30, 2002 and December 31, 2001 (6.7) (6.7)
Retained earnings 244.6 241.3
Accumulated other comprehensive loss (3.2) (8.5)
------------- ------------
Total stockholders' equity 304.5 295.9
------------- ------------
Total liabilities and stockholders' equity $ 932.3 $ 912.1
============= ============
See Notes to Condensed Consolidated Financial Statements
3
M & F WORLDWIDE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NINE MONTHS ENDED
-------------------------
SEPTEMBER 30,
2002 2001
---------- ----------
OPERATING ACTIVITIES
Net income $ 3.6 $ 4.6
Adjustments to derive net cash provided by operating activities:
Depreciation and amortization 35.8 29.3
(Gain) loss on sale of property and equipment (1.1) 0.2
Amortization of discount on subordinated notes 1.4 8.7
Minority interest - accretion on Panavision Series B Preferred Stock 1.3 -
Deferred income taxes 0.2 4.7
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (6.3) 7.1
(Increase) decrease in inventories (0.3) 2.2
Decrease (increase) in prepaid expenses and other current assets 0.8 (3.0)
Increase in accounts payable and accrued expenses 5.1 7.7
(Increase) decrease in pension asset (0.7) 20.8
Other, net (1.6) (1.7)
---------- ----------
Net cash provided by operating activities 38.2 80.6
INVESTING ACTIVITIES
Purchase of Panavision stock, net of cash acquired of $5.6 - (76.3)
Purchase of Panavision subordinated notes - (0.9)
Purchase of Las Palmas Productions stock, net of cash acquired of $0.3 - (5.7)
Capital expenditures, net (18.2) (9.8)
---------- ----------
Net cash used in investing activities (18.2) (92.7)
FINANCING ACTIVITIES
Proceeds from notes payable and credit agreements 33.7 103.2
Repayments of notes payable and credit agreements (46.1) (56.4)
Debt issuance costs and deferred financing costs (1.6) (4.3)
Investment by Deluxe Laboratories, Inc. in EFILM, LLC 5.0 -
Proceeds from issuance of Panavision Series B Preferred Stock 10.0 -
Repurchase of common stock - (6.5)
Preferred stock dividends (0.3) (0.1)
---------- ----------
Net cash provided by financing activities 0.7 35.9
Effect of exchange rate changes on cash 0.2 0.1
Net increase in cash and cash equivalents 20.9 23.9
Cash and cash equivalents at beginning of period 6.2 2.6
---------- ----------
Cash and cash equivalents at end of period $ 27.1 $ 26.5
========== ==========
Supplemental disclosure of cash paid for:
- -----------------------------------------
Interest $ 24.8 $ 13.9
Taxes paid, net of refunds 3.5 4.0
Supplemental non-cash financing activities
- ------------------------------------------
Issuance of Panavision Series B Preferred Stock for $37.7 principal amount
of Existing Notes plus unpaid accrued
interest of $1.5, and accreted dividend of $1.3 $ 40.5 $ -
Issuance of treasury stock in connection with Panavision Acquisition - 7.7
Issuance of preferred stock in connection with Panavision Acquisition - 31.7
See Notes to Condensed Consolidated Financial Statements
4
M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
M & F Worldwide Corp. ("M & F Worldwide" or the "Company"), an indirect
majority-owned subsidiary of Mafco Holdings Inc. ("Holdings"), was incorporated
in Delaware on June 1, 1988 and is a holding company that conducts its
operations through its indirect wholly owned subsidiary Pneumo Abex Corporation
("Pneumo Abex" or "Mafco Worldwide") and its indirect 85.7% owned subsidiary
Panavision Inc. ("Panavision").
The Company acquired Panavision on April 19, 2001. The acquisition was
accounted for as a purchase and accordingly Panavision's results of operations
are included in the Company's operating results only since that date. For
further information on the Panavision Acquisition, see the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.
Certain shareholders of the Company brought suits against the Company and
its directors challenging the Panavision Acquisition as an alleged breach of
fiduciary duty and seeking, among other things, rescission of the transaction.
One of the shareholders dismissed his lawsuit pursuant to a settlement in 2001
(see Note 10). On July 26, 2002, as discussed further in Note 10, the Company
and the other parties to the litigation reached a Stipulation of Settlement (the
"Settlement"). Under the terms of the Settlement approved by the Chancery Court,
Holdings will (a) acquire (1) the shares of Panavision Common Stock that the
Company purchased in April 2001, (2) the shares of Panavision Series A Preferred
Stock that the Company acquired in December 2001, (3) the 9-5/8% Senior
Subordinated Discount Notes Due 2006 (the "Existing Notes") that Pneumo Abex
acquired in November 2001, and (4) the note in the amount of $6.7 (the "Las
Palmas Note") that Panavision issued to the Company on its acquisition of the
shares of Las Palmas Productions, Inc. ("Las Palmas") in July 2002, and (b)
deliver to the Company $90.1 in cash and all of the shares of Company's Common
Stock and Series B Preferred Stock that Holdings has acquired since April 2001.
In addition, all agreements to which the Company is a party that were entered
into in connection with the Panavision Acquisition and the December 2001
issuance of the Panavision Series A Preferred Stock will be terminated. After
consummation of the Settlement, assuming no other change to the outstanding
number of common or preferred shares of the Company, Holdings will own
approximately 36.7% of the Company's outstanding shares. The Settlement is
expected to be consummated prior to the end of the year and, at that time, the
Company will present the operations of Panavision as discontinued. Had the
Settlement been consummated on September 30, 2002, the Company would have
recognized a net pretax gain on disposition of approximately $10.2, primarily
resulting from Panavision's net losses from April 19, 2001 through September 30,
2002 partially offset by the decrease in quoted market prices for the Company's
common stock used to determine the acquisition price and September 30, 2002, and
various other factors. The gain or loss on disposition will change based on
Panavision's results of operations through the date that the Settlement is
consummated and the quoted market price of common stock on that date (see Note
10).
Mafco Worldwide produces a variety of licorice flavors from licorice
root, intermediary licorice flavors produced by others and certain other
ingredients at its facilities in Camden, New Jersey, Richmond, Virginia,
Gardanne, France and Xianyang Shaanxi, China. Approximately 70% of Mafco
Worldwide's licorice sales are to the worldwide tobacco industry for use as
flavoring and moistening agents in the manufacture of American blend cigarettes,
moist snuff, chewing tobacco and pipe tobacco. While licorice represents a small
percentage of the total cost of manufacturing American blend cigarettes and
other tobacco products, the particular formulation and quantity used by each
brand is an important element in the brand's flavor. Mafco Worldwide also sells
licorice to worldwide confectioners, food processors and pharmaceutical
manufacturers for use as flavoring or masking agents. In addition, Mafco
Worldwide sells licorice root residue as garden mulch under the name Right
Dress. Mafco Worldwide manufactures and sells other flavor products and plant
products which include natural roots, spices and botanicals that are used in
food, tobacco, pharmaceutical and health foods.
5
M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
Panavision is a leading designer, manufacturer and supplier of
high-precision camera systems, comprising cameras, lenses and accessories, for
the motion picture and television industries. Panavision rents its products
through its owned-and-operated facilities in North America, Europe, and the Asia
Pacific region, as well as through a worldwide agent network. In addition to
manufacturing and renting camera systems, Panavision also rents lighting,
lighting grip, power distribution, generation and related transportation
equipment and sells lighting filters and other color correction and diffusion
filters. Panavision also owns 80% of EFILM, LLC ("EFILM"), a digital laboratory.
At September 30, 2002, Holdings' indirect beneficial ownership of M & F
Worldwide represented 41.53% of the outstanding M & F Worldwide common stock and
56.66% of the outstanding M & F Worldwide voting stock.
At September 30, 2002, M & F Worldwide's indirect beneficial ownership of
Panavision represented 83.5% of the outstanding Panavision common stock and
85.7% of the outstanding Panavision voting stock.
The accompanying condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions for
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. The results of
operations for interim periods are not necessarily indicative of the results
that may be expected for the fiscal year. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and accompanying notes included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001. All terms used but not defined
elsewhere herein have the meaning ascribed to them in the Company's 2001 Annual
Report on Form 10-K.
The condensed consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries after elimination of all
material intercompany accounts and transactions.
Certain amounts in previously issued financial statements may have been
reclassified to conform to the 2002 presentation.
2. INVENTORIES
Inventories consist of the following:
SEPT. 30, DEC. 31,
2002 2001
-------- --------
Raw materials and supplies $43.6 $42.3
Work-in-process 0.6 0.6
Finished goods 19.4 19.4
-------- -------
$63.6 $62.3
======== =======
3. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from such
estimates.
6
M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
4. LONG-TERM DEBT
On March 15, 2002, Panavision amended its Existing Credit Agreement to,
among other things, revise certain of the financial tests and required ratios
that Panavision must maintain through December 31, 2002. As required under the
amended Existing Credit Agreement, on June 28, 2002, Panavision (1) acquired
from Holdings $10.0 in cash and $37.7 principal amount at maturity of Existing
Notes in exchange for 49,199 shares of Panavision's Redeemable Series B
Cumulative Pay-in-Kind Preferred Stock, par value $0.01 per share (the
"Panavision Series B Preferred Stock"), (2) cancelled the $37.7 principal amount
at maturity of Existing Notes promptly after receiving them and (3) paid the
lenders a fee equal to 1% of the amount of the balance of the Existing Credit
Agreement.
On April 1, 2002, Panavision entered into an agreement with certain
holders of its Existing Notes that gave Panavision the option to acquire from
these holders, Existing Notes with a principal amount at maturity of $78.4 at a
price of $650 per $1,000 of principal amount. On June 28, 2002, Panavision
assigned this option to Holdings. Holdings exercised the option on July 3, 2002.
On June 27, 2002, the Company entered into an agreement with Holdings
that gives the Company the option (the "Holdings Option"), in whole but not in
part, of (1) acquiring the Panavision Series B Preferred Stock issued to
Holdings at Holdings' cost of the Existing Notes with a principal maturity of
$37.7 plus a 10% cost of carry plus the liquidation preference value of the
shares issued for the $10.0 equity contribution made by Holdings, and (2)
acquiring the Existing Notes with a principal amount at maturity of $78.4
acquired by Holdings at Holdings' cost, including an option fee of $5.5, plus a
10% cost of carry. The Holdings Option gives the Company the right to exercise
the Holdings Option during the period commencing upon final adjudication of the
shareholder litigation (see Note 10) and ending on the date that is twelve
months after such final adjudication, provided that the Company beneficially
owns a 66 2/3% of the voting securities of Panavision currently owned by it.
Upon consummation of the Settlement, the Company and Holdings will cancel the
Holdings Option.
In April 2002, Panavision postponed an offering of Secured Notes it had
previously announced and also deferred its plans to replace its Existing Credit
Agreement with a new credit agreement. As a result, Panavision expensed all
costs (primarily legal, accounting, advisory and lenders' fees) in connection
with the refinancing. Such costs are reflected in refinancing expense in the
accompanying condensed consolidated financial statements.
On June 14, 2002, Panavision amended its Existing Credit Agreement to,
among other things, allow Panavision to (1) acquire the shares of Las Palmas
from M & F Worldwide in exchange for the Las Palmas Note, (2) contribute the
assets of Las Palmas and certain other assets owned by Panavision to the
newly-formed EFILM in exchange for 80% of its membership interests (see Note 11)
and (3) allow Deluxe Laboratories, Inc. to purchase 20% of the EFILM membership
interests for $5.0. In addition certain covenants were amended.
At the closing of the Panavision Acquisition, Ronald O. Perelman,
Holdings' sole shareholder, delivered a letter to the Company agreeing that, if
the Company determines in its good faith and reasonable judgment that Panavision
is unable to make required payments of principal or interest under its Existing
Credit Agreement or its Existing Notes, he or corporations under his control
will provide such financial support to the Company as may be required by
Panavision in connection with such payments of principal and interest. Pursuant
to the Settlement discussed in Notes 1 and 10, this letter agreement will be
terminated.
Effective September 30, 2002, Panavision amended the Existing Credit
Agreement to, among other things, reduce the minimum EBITDA Panavision was
required to achieve for the four fiscal quarters ending September 30, 2002 (the
"Amendment"). This provision of the Amendment will expire on March 28, 2003.
7
M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
As a consequence of the Amendment, Panavision is in compliance with the
financial covenants under the Existing Credit Agreement for the period ending
September 30, 2002. It is unlikely, however, that Panavision will achieve the
required EBITDA for the year ending December 31, 2002. As a result, and in
accordance with the requirements of generally accepted accounting principles,
the debt outstanding under the Existing Credit Agreement has been reclassified
as a current liability on the Company's consolidated balance sheet. If
Panavision were unable to meet the minimum EBITDA for the year ending December
31, 2002, then in such event as early as January 2003 or, were Panavision
successful in achieving the minimum EBITDA, then upon expiration of the
Amendment on March 28, 2003, Panavision will be required to seek additional
waivers or amendments of the covenants under the Existing Credit Agreement or,
in the absence of such waivers or amendments, obtain other sources of financing
were the lenders under the Existing Credit Agreement unwilling to permit the
debt to remain outstanding. Also, were the lenders unwilling to permit the debt
under the Existing Credit Agreement to remain outstanding, then the holders of
the Existing Notes would have a similar right to demand repayment. Although the
lenders under the Existing Credit Agreement have accommodated Panavision to date
and Panavision believes that the lenders will continue to do so, there can be
no assurance that they will continue to do so nor can there be any assurance
that Panavision could successfully effect any alternate financing.
The Amendment also provides that it is an event of default if (i) by
February 1, 2003, an affilite of Panavision fails to make a cash equity
contribution to Panavision in the amount of the interest due February 1, 2003 on
Existing Notes held by affiliates of Panavision on that date or (ii) by March
28, 2003, the Existing Credit Agreement is not refinanced or the debt of
Panavision reduced, in either case, by an amount acceptable to the lenders under
the Existing Credit Agreement, or an affiliate of Panavision fails to make a
cash equity contribution to Panavision in the amount of the interest which was
due on February 1, 2003 on Existing Notes held by non-affiliates of Panavision
on that date. Holdings has agreed to make, on appropriate terms, the required
cash equity contributions to Panavision.
Although there can be no assurance, Panavision expects that cash flows
from operations, borrowings under the Existing Credit Agreement, cash equity
contributions from Holdings and advances from affiliates will be sufficient to
enable Panavision to meet its anticipated cash requirements through March 28,
2003, including for operating expenses, working capital, capital expenditures,
further investment in EFILM, LLC and scheduled debt service requirements.
Upon consummation of the Settlement, the Company will record the sale of
Panavision and cease to consolidate Panavision's debt (see Note 10).
In connection with the Settlement, Pneumo Abex amended its credit
agreement on October 28, 2002, so that the lenders will: (a) release all liens
in their favor on the Panavision shares held by the Company and the Existing
Notes held by Pneumo Abex and (b) release PVI Acquisition Corporation, a wholly
owned subsidiary of the Company, from all of its obligations and liabilities
under a guarantee and collateral agreement to the credit agreement. In exchange,
the parties agreed to: (a) an increase, in the annual interest rate, of 0.5% (b)
a mandatory prepayment of $4.4, (c) a reduction in the revolving commitments by
$5.0 and (d) an amendment fee of approximately $0.3. This amendment will be
effective on the date when the Settlement is consummated. The mandatory
prepayment of $4.4 is included in the current portion of long-term debt on the
accompanying condensed consolidated balance sheet at September 30, 2002.
5. ISSUANCE OF PANAVISION SERIES B PREFERRED STOCK
As discussed in Note 4, on June 28, 2002, Panavision issued 49,199 shares
of Panavision Series B Preferred Stock to Holdings. The Panavision Series B
Preferred Stock is non-voting, has a liquidation preference of $49.2, plus
accrued and unpaid dividends, and entitles its holders to cumulative dividends
at a rate of 10% per annum. The Panavision Series B Preferred Stock may be
redeemed by Panavision, at its option, at any time at a price of $1,000 per
share plus accrued and unpaid dividends. The Panavision Series B Preferred Stock
is shown as a minority interest in the consolidated financial statements of the
Company.
8
M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
The Company is required to carry the Panavision Series B Preferred Stock
at its redemption value (which management believes approximates fair value).
Accordingly, the Company recorded a $1.3 increase in the carrying value of the
Panavision Series B Preferred Stock (reflected as minority interest in the
accompanying condensed consolidated statements of operations) to adjust the
carrying value to redemption value at September 30, 2002 for the accreted
dividend.
6. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
GOODWILL AND OTHER INTANGIBLE ASSETS ACQUIRED THROUGH BUSINESS ACQUISITIONS
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets" as of January 1, 2002. The
reassessment of the useful lives of intangible assets acquired on or before June
30, 2001 was completed during the first quarter of 2002. Amortization of
goodwill resulting from business acquisitions of $331.7 was discontinued as of
January 1, 2002. Other intangible assets totaling $175.8 as of January 1, 2002
primarily consisted of Panavision's tradename, Mafco Worldwide's product
formulas, and Panavision's patents and trademarks. The useful lives of
Panavision's tradename and Mafco Worldwide's product formulas, which totaled
$174.4, were determined to be indefinite and, therefore, amortization of these
assets was discontinued as of January 1, 2002.
The Company performed impairment tests on Panavision's tradename and
Mafco Worldwide's product formulas during the first quarter of 2002. No
impairment of these assets was determined as a result of the tests. The Company
performed impairment tests on goodwill during the second quarter of 2002 and
determined as a result of such tests that there is no impairment of goodwill. A
reconciliation of reported net income to net income adjusted to reflect the
impact of the discontinuance of the amortization of goodwill, Mafco Worldwide's
product formulas and Panavision's tradename (hereafter referred to as the Other
Intangibles in the table below), which had been included as a component of
selling, general and administrative expenses for the three and nine months ended
September 30, 2001, is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Reported net income (loss)
available to common shareholders: $ 1.9 $ (8.2) $ 3.3 $ 4.5
Add back: Goodwill amortization - 2.7 - 4.6
Add back: Other intangibles amortization - 1.9 - 4.2
--------- --------- --------- ---------
Adjusted net income (loss) $ 1.9 $ (3.6) $ 3.3 $ 13.3
========= ========= ========= =========
Basic and diluted earnings per share:
Reported net income (loss) $ 0.07 $ (0.31) $ 0.13 $ 0.19
Goodwill amortization - 0.10 - 0.19
Other intangibles amortization - 0.07 - 0.18
--------- --------- --------- ---------
Adjusted basic and diluted earnings
(loss) per share $ 0.07 $ (0.14) $ 0.13 $ 0.56
========= ========= ========= =========
9
M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
LONG-LIVED ASSETS
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
which is effective for fiscal years beginning after December 15, 2001. SFAS No.
144 supersedes SFAS No. 121, "Accounting for the Impairment or Disposal of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions relating to the disposal of a segment of a
business of Accounting Principles Board Opinion No. 30. The adoption of SFAS No.
144 did not have a material effect on the Company's consolidated financial
position, results of operations and cash flows.
EARLY EXTINGUISHMENT OF DEBT
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." Among other things, SFAS No. 145 requires gains and losses from
early extinguishment of debt to be included in income from continuing operations
instead of being classified as extraordinary items as previously required by
accounting principles generally accepted in the United States. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002 and will be adopted by
the Company on January 1, 2003. Any gain or loss on early extinguishment of debt
that was classified as an extraordinary item in periods prior to adoption must
be reclassified into income from continuing operations. The adoption of SFAS No.
145 will require the $0.2 of extraordinary charges for the nine months ended
September 30, 2001 to be reclassified accordingly.
7. GEOGRAPHICAL AND BUSINESS SEGMENT INFORMATION
The following table presents revenue and other financial information by
geographic region for each business segment:
THREE MONTH PERIODS ENDED NINE MONTH PERIODS ENDED
-------------------------------- -------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales from external customers
Panavision
North America $ 28.7 $ 19.0 $ 72.5 $ 42.4
Europe 17.4 14.7 49.2 29.3
Asia/Pacific 6.4 4.3 19.7 9.5
------------- ------------- ------------- -------------
Subtotal 52.5 38.0 141.4 81.2
Mafco Worldwide
North America 19.1 20.2 63.7 64.5
Europe 3.0 3.3 10.0 10.3
------------- ------------- ------------- -------------
Subtotal 22.1 23.5 73.7 74.8
------------- ------------- ------------- -------------
Total revenues $ 74.6 $ 61.5 $ 215.1 $ 156.0
============= ============= ============= =============
10
M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
THREE MONTH PERIODS ENDED NINE MONTH PERIODS ENDED
-------------------------------- -------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Operating income (loss)
Panavision
North America $ 11.6 $ 3.1 $ 18.8 $ 11.7
Europe (1.0) (1.4) (3.5) (1.5)
Asia/Pacific 1.0 - 3.7 0.9
Corporate (2.0) (4.3) (3.4) (6.6)
------------- ------------- ------------- -------------
Subtotal 9.6 (2.6) 15.6 4.5
Mafco Worldwide
North America 8.3 7.9 28.2 25.2
Europe 0.9 1.1 3.1 3.2
Pension reversion gain (loss) - (0.1) - 10.3
Corporate (0.1) (1.2) (1.2) (2.0)
------------- ------------- ------------- -------------
Subtotal 9.1 7.7 30.1 36.7
Corporate expenses (4.6) (4.8) (5.1) (5.4)
------------- ------------- ------------- -------------
Total operating income $ 14.1 $ 0.3 $ 40.6 $ 35.8
============= ============= ============= =============
8. COMPREHENSIVE INCOME
For the three months ended September 30, 2002 and 2001, comprehensive
income (loss) amounted to $1.3 and ($5.8), respectively. For the nine months
ended September 30, 2002 and 2001, comprehensive income amounted to $8.9 and
$4.8, respectively. The difference between net income and comprehensive income
relates to the change in foreign currency translation adjustments and minimum
pension liabilities.
9. NET INCOME PER SHARE
The basic and diluted per share data is based on the weighted average
number of preferred and common shares outstanding during the following periods:
THREE MONTH PERIODS ENDED NINE MONTH PERIODS ENDED
------------------------- ------------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2002 2001 2002 2001
--------- --------- ---------- ---------
Basic weighted average shares outstanding:
Common stock 19.6 20.6 19.6 20.0
Preferred stock 6.9 6.2 6.9 3.7
--------- --------- ---------- ---------
Total shares outstanding 26.5 26.8 26.5 23.7
========= ========= ========== =========
Diluted weighted average shares outstanding:
Common stock 19.8 20.6 19.7 20.0
Preferred stock 6.9 6.2 6.9 3.7
--------- --------- ---------- ---------
Total shares outstanding 26.7 26.8 26.6 23.7
========= ========= ========== =========
Common equivalent shares consisting of outstanding stock options are
included in the 2002 diluted income per share calculations. They are not
included in the 2001 calculations since they are antidilutive.
11
M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES
CORPORATE INDEMNIFICATION MATTERS
Prior to 1988, a former subsidiary of the Company manufactured certain
asbestos-containing friction products. Pneumo Abex has been named, typically
along with 10 to as many as 100 or more other companies, as a defendant in
various personal injury lawsuits claiming damages relating to exposure to
asbestos. Pursuant to indemnification agreements, PepsiAmericas, Inc., formerly
known as Whitman Corporation (the "Original Indemnitor"), has retained ultimate
responsibility for asbestos-related claims made through August 1998 and for
certain asbestos-related claims asserted thereafter. In connection with the sale
by Abex in December 1994 of its Friction Products Division, a subsidiary (the
"Second Indemnitor") of Cooper Industries, Inc. (the "Indemnity Guarantor")
assumed responsibility for substantially all of the asbestos-related claims made
after August 1998. Federal-Mogul Corporation purchased the Second Indemnitor in
October 1998. In October 2001, the Second Indemnitor filed a petition under
Chapter 11 of the U.S. Bankruptcy Code and stopped performing its indemnity
obligations to the Company. Performance of the Second Indemnitor's indemnity
obligation is guaranteed by the Indemnity Guarantor. Following the bankruptcy
filing of the Second Indemnitor, the Company confirmed that the Indemnity
Guarantor will fulfill the Second Indemnitor's indemnity obligations to the
extent that they are no longer being performed by the Second Indemnitor. During
the third quarter of 2002, the Indemnity Guarantor repaid the Company, following
an arbitration between the Company and the Indemnity Guarantor, $3.5 that the
Company had advanced for indemnified matters.
Pneumo Abex's former subsidiary maintained product liability insurance
covering substantially all of the period during which asbestos-containing
products were manufactured. There has been litigation since 1982 concerning the
availability of this coverage, and there can be no assurance as to the outcome.
Nonetheless, as a result of rulings in the litigation, settlements and other
coverage agreements with carriers, and payments by the Original Indemnitor, the
Second Indemnitor and the Indemnity Guarantor pursuant to their indemnities,
Pneumo Abex is receiving reimbursement in full each month for its monthly
expenditures for asbestos-related claims. Pneumo Abex is unable to forecast
either the number of future asbestos-related claimants or the amount of future
defense and settlement costs associated with present or future asbestos related
claims.
Various legal proceedings, claims and investigations are pending against
M & F Worldwide and Pneumo Abex, including those relating to commercial
transactions, product liability, safety and health matters and other matters. M
& F Worldwide and Pneumo Abex are involved in various stages of legal
proceedings, claims, investigations and cleanup relating to environmental or
natural resource matters, some of which relate to waste disposal sites. Most of
these matters are covered by insurance, subject to deductibles and maximum
limits, and by third-party indemnities.
The former Aerospace business of the Company formerly sold certain of its
aerospace products to the U.S. Government or to private contractors for the U.S.
Government. Certain claims for allegedly defective pricing made by the U.S.
Government with respect to certain of these aerospace product sales were
retained by Pneumo Abex in the Aerospace sale and remain outstanding. In each
case Pneumo Abex contests the allegations made by the U.S. Government and has
been attempting to resolve these matters without litigation.
The Company believes that the outcome of such pending legal proceedings
in the aggregate will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
12
M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
OTHER LITIGATION MATTERS
In November 2000, five purported derivative and/or class actions were
filed in New Castle County, Delaware Chancery Court against the Company, its
board of directors and, in one case, Holdings and MCG. These actions, as well as
a similar action filed in New York County, New York Supreme Court, challenged as
unfair to the Company's public shareholders the original proposal to sell to the
Company the stake in Panavision then indirectly owned by Holdings. Following
consummation of the Panavision transaction in April 2001, the five Delaware
actions were consolidated under the caption In re M & F Worldwide Corp.
Shareholders Litigation, C.A. No. 18502-NC (the "Consolidated Action"), the
operative complaint in the Consolidated Action was amended to challenge the
transaction as consummated, and another shareholder filed a related action in
the Delaware Chancery Court, captioned Vannini v. Perelman, et al., C.A. No.
18850-NC. The operative complaints sought, among other things, rescission of the
transaction, damages, a declaratory judgment that the transaction was unfair as
to process and as to price, and plaintiffs' costs and attorneys' fees. The
Company and the parties to the Vannini action settled that litigation, pursuant
to which, among other things, the Company acquired one million shares of Company
common stock held by the plaintiff, the plaintiff dismissed his claim with
prejudice, and the Company agreed to pay to plaintiff $10.0 plus up to $1.0 for
reimbursement of his legal costs. The Company recorded treasury stock of $6.5
and shareholder litigation settlement expense of $4.5 in 2001 in connection with
the Vannini settlement. After the Vannini settlement, plaintiffs in the
Consolidated Action commenced a separate derivative action in the Delaware
Chancery Court against the Company's directors and Holdings challenging the
settlement as a breach of fiduciary duty.
In January 2002, during the trial of the Consolidated Action, the
defendants and certain of the plaintiffs reached an agreement in principle,
later reduced to a definitive written agreement, concerning the settlement and
ultimate dismissal of the Consolidated Action and the action challenging the
Vannini settlement. At a hearing before the Chancery Court on May 13, 2002, the
Court declined to approve the settlement, but indicated a willingness to
consider any revised proposal. After the trial resumed in July 2002, the parties
reached a second settlement (the "Settlement"). Under the terms of the
Settlement approved by the Chancery Court, Holdings will (a) acquire (1) the
shares of Panavision Common Stock that the Company purchased in April 2001, (2)
the shares of Panavision Series A Preferred Stock that the Company acquired in
December 2001, (3) the Existing Notes that Pneumo Abex acquired in November
2001, and (4) the Las Palmas Note, and (b) deliver to the Company $90.1 in cash
and all of the shares of Company's Common Stock and Series B Preferred Stock
that Holdings has acquired since April 2001. In addition, all agreements entered
into in connection with the Panavision Acquisition and the December 2001
issuance of Series B Preferred Stock will be terminated.
Upon consummation of the Settlement, which is expected to take place
before year end, the Company will record the sale and report the operations of
Panavision as a discontinued operation. Had the Settlement been consummated on
September 30, 2002, the Company would have recognized a net pretax gain on
disposition of approximately $10.2, primarily resulting from Panavision's net
losses from April 19, 2001 through September 30, 2002 partially offset by the
decrease in quoted market prices for the Company's common stock used to
determine the acquisition price and September 30, 2002, and various other
factors. The gain or loss on disposition will change based on Panavision's
results of operations through the date that the settlement is consummated and
the quoted market price of the Company's common stock on that date. Assuming no
other change to the outstanding number of common or preferred shares of the
Company, Holdings will own approximately 36.7% of the Company's outstanding
shares after consummation of the Settlement.
The following pro forma income statement information for the nine months
ended September 30, 2002 gives effect to the Settlement as if it had been
consummated on January 1, 2002. The following pro forma balance sheet
information as of September 30, 2002 gives effect to the Settlement as if it had
been consummated on September 30, 2002. The pro forma information is not
necessarily indicative of what the
13
M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
results would have been had the Settlement been consummated on such dates and
does not purport to project the results of operations of the Company in any
future period.
Pro Forma Income Statement Data:
Revenue $ 73.7
Gross margin 37.2
Operating income 25.0
Income from continuing operations 13.2
Basic earnings per share 0.73
Pro Forma Balance Sheet Data:
Cash $105.9
Current assets 174.8
Total assets 359.5
Long-term debt (including current portion) 63.9
Stockholders' equity 263.1
In a separate agreement contemporaneous with the Settlement, the
Company's insurance carrier agreed to reimburse $2.0 of the amount that the
Company paid in connection with the Vannini settlement, and certain attorneys'
fees and expenses awarded by the court in connection with the Settlement.
The Company has incurred various legal and related costs in connection
with the defense of the lawsuits. As of September 30, 2002, the Company has a
receivable of $2.5, including the $2.0 related to the Vannini settlement,
reflected in prepaid expenses and other assets, in respect of costs that the
Company expects will be reimbursed by insurance. The Company had unreimbursed
expenses of $3.3 which are included in the shareholder litigation settlement,
net, in the accompanying condensed consolidated statements of operations.
In connection with the Settlement, Pneumo Abex amended its credit
agreement on October 28, 2002, so that the lenders will: (a) release all liens
in their favor on the Panavision shares held by the Company and the Existing
Notes held by Pneumo Abex and (b) release PVI Acquisition Corporation, a wholly
owned subsidiary of the Company, from all of its obligations and liabilities
under a guarantee and collateral agreement to the credit agreement. In exchange,
the parties agreed to: (a) an increase, in the annual interest rate, of 0.5% (b)
a mandatory prepayment of $4.4, (c) a reduction in the revolving commitments by
$5.0 and (d) an amendment fee of approximately $0.3. This amendment will be
effective on the date when the Settlement is consummated.
During the third quarter of 2002 the Company's indirect wholly owned
French subsidiary, (the "Indirect Subsidiary"), received official notice from
the French tax administration that certain interest payments made on a note
payable to the Company would not be allowed as deductions in determining French
income taxes for 1996, 1997 and 1998 and have assessed the Indirect Subsidiary
approximately $1.8 for the taxes, interest and penalties. The Indirect
Subsidiary does not agree with the tax authorities and believes that their tax
returns are correct as filed. The Indirect Subsidiary is in the process of
appealing the assessment. As part of their appeal, the Indirect Subsidiary will
be required to obtain bank guarantees in favor of the French tax administration
in the amount of $1.4. The Company believes that the Indirect Subsidiary's
position is correct under French tax regulations and that the Indirect
Subsidiary will prevail in any future negotiation or litigation. The Indirect
Subsidiary has taken an interest expense deduction on its French tax return for
each completed tax year subsequent to 1998 in an amount substantially the same
as the prior years.
14
M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
11. EFILM, LLC
From July 2, 2001 to July 1, 2002, the Company owned Las Palmas, a
laboratory providing digital processing services to the motion picture and
television industries and Panavision operated the EFILM business pursuant to
employment, license and lease agreements entered into between the Company and
Panavision, whereby the assets and employees of Las Palmas were leased to
Panavision. On July 2, 2002, the Company sold the shares of Las Palmas to
Panavision in exchange for the Las Palmas Note and assumption of the additional
cash earnout payment owed to the original selling shareholders of Las Palmas.
The Las Palmas Note accrues interest at an annual rate of 10% and the principal
and accrued interest are payable on September 30, 2005 or upon the refinancing
of the Existing Credit Agreement. Since Panavision and Las Palmas are under
common control, the transaction was accounted for at historical cost in a manner
similar to that of a pooling of interests. Immediately following the
acquisition, Panavision contributed the assets of Las Palmas and certain other
assets owned by Panavision to the newly-formed EFILM in exchange for 80% of its
membership interests. At the same time, Deluxe Laboratories, Inc. purchased 20%
of the EFILM membership interests for $5.0. Minority interest, representing
Deluxe Laboratories, Inc.'s equity in ownership of EFILM is included in other
liabilities in the accompanying condensed consolidated balance sheets.
12. PANAVISION SHARE LISTING
On August 5, 2002, the New York Stock Exchange ceased listing
Panavision's Common Stock, which now trades over the counter under the ticker
symbol PVIS.OB.
15
M & F WORLDWIDE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW OF THE BUSINESS
The Company conducts its global business through two business segments:
Panavision and Mafco Worldwide. Panavision is a leading designer, manufacturer
and supplier of high precision camera systems, comprising cameras, lenses, and
accessories for the motion picture and television industries. Panavision also
has rental operations providing lighting, lighting equipment, power distribution
and generation equipment. Mafco Worldwide is the world's largest producer of
licorice extract. Sales are principally to the tobacco and confectionery
industries for use as a flavoring ingredient. Mafco Worldwide also manufactures
other flavoring ingredients from various botanicals.
On April 19, 2001, the Company acquired Panavision. The acquisition was
accounted for as a purchase and accordingly only Panavision's results of
operations from April 19, 2001 are included in the Company's operating results.
Certain shareholders of the Company brought suits against the Company and
its directors challenging the Panavision Acquisition as an alleged breach of
fiduciary duty and seeking, among other things, rescission of the transaction.
One of the shareholders dismissed his lawsuit pursuant to a settlement in 2001.
On July 26, 2002, the Company and the other parties to the litigation relating
to the Panavision Acquisition entered into the Settlement. Under the terms of
the Settlement approved by the Chancery Court, Holdings will (a) acquire (1) the
shares of Panavision Common Stock that the Company purchased in April 2001, (2)
the shares of Panavision Series A Preferred Stock that the Company acquired in
December 2001, (3) the Existing Notes that Pneumo Abex acquired in November
2001, and (4) the Las Palmas Note, and (b) deliver to the Company $90.1 million
in cash and all of the shares of Company's Common Stock and Series B Preferred
Stock that Holdings has acquired since April 2001. In addition, all agreements
to which the Company is a party that were entered into in connection with the
Panavision Acquisition and the December 2001 issuance of the Panavision Series A
Preferred Stock will be terminated. After consummation of the Settlement,
assuming no other change to the outstanding number of common or preferred shares
of the Company, Holdings will own approximately 36.7% of the Company's
outstanding shares. Upon consummation of the settlement, the Company will record
the sale and report the operations of Panavision as a discontinued operation.
See Note 10 to the condensed consolidated financial statements.
This section should be read in conjunction with the consolidated
financial statements and accompanying notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001 and the Critical
Accounting Policies as disclosed under Item 7 in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001.
CONSOLIDATED OPERATING RESULTS
QUARTER ENDED SEPTEMBER 30, 2002 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2001
Revenues were $74.6 million in the 2002 third quarter as compared to
$61.5 million in the 2001 third quarter, an increase of $13.1 million or 21.3%.
Mafco Worldwide's revenues were $22.1 million in the 2002 quarter as compared to
$23.5 million in the 2001 quarter, a decrease of $1.4 million or 6.0%. This
decrease was primarily a result of lower shipment volume to the Company's
licorice and non-licorice customers. Revenues from Panavision were $52.5
million, which were $14.5 million or 38.2% higher than the same quarter in 2001.
This increase was primarily due to the resumption to a more normal feature film
production environment in the third quarter of 2002 as compared to an unusually
low level of worldwide feature film productions in the third quarter of 2001.
Cost of revenues were $39.8 million in the third quarter of 2002 as
compared to $36.9 million in the 2001 quarter. The increase of $2.9 million or
7.9%, was due primarily to the higher revenues. As a percentage of sales, cost
of sales decreased to 53.4% in the 2002 quarter from 60.0% in the 2001 quarter.
This decrease was primarily due to the higher revenues and therefore, greater
coverage of fixed costs at Panavision.
Gross profit was $34.8 million in the 2002 quarter, an increase $10.2
million primarily due to higher Panavision revenues.
16
M & F WORLDWIDE CORP. AND SUBSIDIARIES
Selling, general and administrative expenses were $17.4 million in the
2002 quarter and $19.7 million in the 2001 quarter. The decrease was due to
lower costs, primarily the non-amortization of goodwill and indefinite lived
intangible assets, at both Mafco Worldwide and Panavision in 2002.
Net shareholder litigation settlement expenses totaled $3.3 million in
the third quarter 2002 as compared to $4.5 million in 2001. The 2002 expenses
represented amounts paid in excess of the insurance reimbursements for the
Settlement. The 2001 expenses represented costs incurred in the Vannini
shareholder settlement.
The Company recorded a minority interest charge of $1.3 million as a
result of the accreted dividend on the Panavision Series B Preferred Stock (see
Note 5 to the condensed consolidated financial statements).
Operating income was $14.1 million in the 2002 quarter as compared to
$0.3 million in the 2001 quarter primarily due to the higher revenues at
Panavision in the 2002 quarter.
Interest expense, net, was $8.5 million in the 2002 quarter and $10.9
million in the 2001 quarter, a decrease of $2.4 million, due to lower average
debt outstanding.
The Company recorded a provision for income taxes in the 2002 quarter of
$3.0 million, which is an effective rate of 60.0%. The Company recorded a
benefit from income taxes of $1.6 million in the 2001 quarter due to pre-tax
losses.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 2001
Revenues were $215.1 million in the 2002 period and $156.0 million in the
2001 period. Of the $59.1 million increase, most of the increase was due to the
inclusion of Panavision revenues for the full 2002 period but only since April
19, 2001 in the 2001 period offset in part by lower revenues by Mafco Worldwide.
Costs of revenues were $119.0 million in the 2002 period as compared to
$85.3 million in the 2001 period, an increase of $33.7 million. Most of the
increased costs were attributable to the inclusion of Panavision for the full
2002 period but only since April 19, 2001 in the 2001 period. Costs at Mafco
Worldwide decreased $2.9 million due to lower material costs and manufacturing
efficiencies.
Gross profit was $96.1 million for the 2002 period as compared to $70.7
million in the 2001 period, an increase of $25.4 million. The increase
attributable to Panavision was $23.6 million and $1.8 million to Mafco
Worldwide. As a percentage of sales the 2002 gross profit was 44.7% as compared
to 45.3% in 2001. The decrease was primarily attributable to the inclusion of
Panavision for the full 2002 period and only since April 19, 2001 in the 2001
period.
Selling, general and administrative expenses were $54.2 million in the
2002 period and $40.7 million in the 2001 period. The $13.5 million increase was
due to the inclusion of Panavision for the full 2002 period but only since April
19, 2001 in the 2001 period and increased costs in 2002 relating to the
Arbitration, lower pension income, higher executive compensation and various
other professional fees partially offset by the non-amortization of goodwill and
indefinite lived intangible assets in 2002.
Net shareholder litigation settlement expenses totaled $1.3 million in
the 2002 period and $4.5 million in the 2001 period. The 2002 expenses included
$3.3 million of amounts paid in excess of insurance reimbursement, offset in
part by $2.0 million of the Vannini litigation settlement expenses that the
insurance carriers agreed to pay in the second quarter of 2002. The 2001
expenses of $4.5 million represented costs incurred in the Vannini shareholder
settlement.
Operating income totaled $40.6 million in the 2002 period as compared to
$35.8 million in the 2001 period. Included in the 2001 period is a $10.3 million
gain on a pension reversion. Excluding this gain, operating income in the 2002
period increased by $15.1 million due to the inclusion of Panavision for the
whole period in 2002 and higher operating income at Mafco Worldwide.
17
M & F WORLDWIDE CORP. AND SUBSIDIARIES
The Company recorded a minority interest charge of $1.3 million as a
result of the accreted dividend on the Panavision Series B Preferred Stock (see
Note 5 to the condensed consolidated financial statements).
Interest expense was $27.2 million in 2002 and $21.2 million in 2001, an
increase of $6.0 million primarily attributable to the inclusion of Panavision
for the full 2002 period but only since April 19, 2001 in the 2001 period.
Refinancing expense of $4.5 million in the 2002 period reflects costs
incurred in connection with Panavision's discontinued offering of secured notes
and bank refinancing. These costs include $2.2 million of charges, primarily
consisting of professional fees incurred in connection with Panavision's
refinancing and lender's fees of $2.9 million in accordance with the March
Amendment. This was offset by $0.6 million reversal of the fair value adjustment
arising from the Panavision Acquisition which resulted from the $37.7 million
principal amount at maturity of Existing Notes that were cancelled on June 28,
2002.
The provision for income taxes was $5.0 million in the 2002 period and
$10.1 million in 2001. The decrease was due to lower pre-tax income in 2002. The
effective tax rate was 58.1% for the 2002 period as compared to 67.8% for the
2001 period. The decrease in the effective tax rate in 2002 is primarily a
result of the higher percentage income taxes on the pension reversion in 2001
and higher foreign tax losses of Panavision in 2001 for which no tax benefit is
provided.
OPERATING RESULTS BY BUSINESS SEGMENT
MAFCO WORLDWIDE
QUARTER ENDED SEPTEMBER 30, 2002 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2001
Revenues were $22.1 million in the 2002 period and $23.5 million in the
2001 period This decrease was due to lower shipment volume to Mafco Worldwide's
licorice and non-licorice customers.
Cost of revenues was $11.3 million in the 2002 period and $12.2 million
in the 2001 period, a decrease of $0.9 million. As a percentage of sales, cost
of sales was 51.1% in 2002 and 51.9% in 2001. The decrease in 2002 was due to
lower material costs and improved manufacturing efficiencies.
Selling, general and administrative expenses were $2.2 million in the
2002 period and $3.5 million in the 2001 period, a decrease of $1.3 million. The
decrease reflects the non-amortization of goodwill and indefinite lived
intangible assets of $1.0 million and lower professional service and other costs
in 2002.
Operating income was $8.6 million in the 2002 period and $7.7 million in
the 2001 period, an increase of $0.9 million.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 2001
Revenues were $73.7 million in the 2002 period and $74.8 million in the
2001 period, a decrease of $1.1 million. This decrease was due to lower shipment
volume to the Company's licorice and non-licorice customers.
Cost of revenues was $36.5 million in the 2002 period and $39.4 million
in the 2001 period. The $2.9 million decrease was due to lower material costs
and manufacturing efficiencies. As a percentage of sales, cost of sales was
49.5% in 2002 and 52.7% in 2001.
Selling, general and administrative expenses were $7.7 million in the
2002 period and $9.0 million in the 2001 period. The decrease is primarily
attributable to the non-amortization of goodwill and indefinite lived intangible
assets in 2002 offset in part by expenses related to the Arbitration.
Operating income was $29.6 million in 2002 and $36.7 million in 2001.
Included in the 2001 period is a $10.3 million pension reversion gain. If this
item is excluded, the 2001 operating income would be $26.4 million resulting in
a $3.2 million increase in 2002 over 2001.
18
M & F WORLDWIDE CORP. AND SUBSIDIARIES
PANAVISION
The following selected financial data has been derived from Panavision's
unaudited Condensed Consolidated Financial Statements included in Panavision's
Report on Form 10-Q for the quarterly period ended September 30, 2002. With
respect to the nine month period ended September 30, 2001, the following
discussion and analysis includes the results of operations of Panavision since
January 1, 2001, including the period prior to the Panavision Acquisition. The
selected financial data below does not represent a pro forma presentation of the
results of Panavision for 2001.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
---------- ---------- ---------- -----------
(Unaudited) (Unaudited)
(in millions) (in millions)
Camera rental $ 33.4 $ 23.2 $ 88.8 $ 98.3
Lighting rental 8.5 6.4 24.7 23.4
Sales and other 10.6 8.3 27.9 25.3
---------- ---------- ---------- -----------
Total rental revenue and sales 52.5 37.9 141.4 147.0
Cost of camera rental 15.5 14.1 45.9 44.5
Cost of lighting rental 6.8 6.0 19.9 19.6
Cost of sales and other 6.2 4.6 17.1 13.9
---------- ---------- ---------- -----------
Gross margin 24.0 13.2 58.5 69.0
Selling, general and administrative expenses 13.5 14.2 40.0 45.0
Research and development expenses 0.8 1.2 3.2 4.3
---------- ---------- ---------- -----------
Operating income (loss) 9.7 (2.2) 15.3 19.7
Interest expense, net (8.0) (9.6) (25.1) (32.8)
Foreign exchange gain (loss) 0.5 0.7 0.7 (0.3)
Refinancing expense - - (4.5) -
Other, net 0.1 0.3 0.9 0.8
---------- ---------- ---------- -----------
Income (loss) before income taxes 2.3 (10.8) (12.7) (12.6)
Income tax (provision) benefit (1.6) 2.6 3.7 4.0
---------- ---------- ---------- -----------
Net income (loss) $ 0.7 $ (8.2) $ (9.0) $ (8.6)
========== ========== ========== ===========
The following discussion of the results of Panavision have been presented
based on the results reported by Panavision on a stand alone and comparative
basis which is the basis on which management monitors the segment.
QUARTER ENDED SEPTEMBER 30, 2002 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2001
CAMERA RENTAL OPERATIONS
Camera rental revenue for the third quarter of 2002 was $33.4 million.
Revenue increased $10.2 million, or 44.0%, compared to the third quarter of
2001. The increase was primarily due to the resumption to a more normal feature
film production environment in the third quarter of 2002, as compared to an
unusually low level of worldwide feature film productions in the third quarter
of 2001.
Cost of camera rental for the third quarter of 2002 was $15.5 million, an
increase of $1.4 million, or 9.9% from the third quarter of 2001. The 2002 costs
included approximately $0.8 million of additional depreciation resulting from
the fair value adjustments arising from the Panavision Acquisition in April
2001.
19
M & F WORLDWIDE CORP. AND SUBSIDIARIES
LIGHTING RENTAL OPERATIONS
Lighting rental revenue for the third quarter of 2002 was $8.5 million.
Revenue increased $2.1 million, or 32.8%, as compared to the third quarter of
2001. The increase reflects stronger feature film revenues in the U.K. and
Australia.
Cost of lighting rental for the third quarter of 2002 was $6.8 million,
an increase of $0.8 million, or 13.3%, from the third quarter of 2001. This
change reflects increased costs associated with the revenue growth.
SALES AND OTHER
Sales and other revenue in the third quarter of 2002 increased $2.3
million, or 27.7%, from the third quarter of 2001. The increase reflects higher
lighting filter and expendable sales worldwide and additional revenue generated
by EFILM.
Cost of sales and other for the third quarter of 2002 increased $1.5
million, or 32.6%, as compared to the third quarter of 2001. The increase is
primarily due to additional costs associated with EFILM's operation and higher
lighting filter and expendable sales.
OPERATING COSTS
Selling, general and administrative expenses for the third quarter of
2002 were $13.5 million, a decrease of $0.8 million, or 5.6%, as compared to the
third quarter of 2001. The decrease was primarily due to the elimination of
approximately $3.3 million of goodwill and tradename amortization resulting from
Panavision's adoption of SFAS No. 142 on January 1, 2002. The reductions were
offset by approximately $1.1 million of additional costs associated with EFILM's
operation and other items.
Research and development expenses for the third quarter of 2002 were $0.8
million, a decrease of $0.4 million, or 33.3%, as compared to the third quarter
of 2001. The decrease was primarily due to cost control programs, including
headcount reductions.
INTEREST, TAXES AND OTHER
Net interest expense for the third quarter of 2002 was $8.0 million, a
decrease of $1.6 million, or 16.7%, as compared to the third quarter of 2001.
The decrease primarily reflects lower interest rates and debt levels as compared
to the third quarter of 2001.
Foreign exchange gain for the third quarter of 2002 was $0.5 million,
down $0.2 million, or 28.6%, from the third quarter of 2001. This change is
primarily due to the effect of the fluctuating British Pound rate on U.S. Dollar
denominated payable balances held in the U.K.
The tax provision was $1.6 million for the quarter ended September 30,
2002, as opposed to a tax benefit of $2.6 million for the quarter ended
September 30, 2001. This change is due to domestic operations, which generated
an income tax provision of $0.2 million in the third quarter of 2002, as opposed
to domestic operations that generated an income tax benefit of $3.0 million in
the third quarter of 2001. Additionally, Panavision's foreign operations
generated an income tax provision of $1.4 million in the third quarter of 2002,
as compared to an income tax provision of $0.4 million in the third quarter of
2001.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 2001
CAMERA RENTAL OPERATIONS
Camera rental revenue for the nine months ended September 30, 2002 was $
88.8 million. Revenue decreased $9.5 million or 9.7%, compared to the nine
months ended September 30, 2001. The decline reflects substantially lower
feature film production as compared to a robust feature film environment in the
first half of 2001. The strong
20
M & F WORLDWIDE CORP. AND SUBSIDIARIES
feature film environment in 2001 occurred in anticipation of the possibility of
mid-year strikes by the Writers Guild of America and Screen Actors Guild. Both
of the labor negotiations were concluded at the end of the second quarter of
2001 without any labor disruption. The lower revenue also reflects a reduction
in revenue generated by a lower level of Movies of the Week. Revenue generated
from television commercials remains weak worldwide.
Cost of camera rental for the nine months ended September 30, 2002 was
$45.9 million, an increase of $1.4 million, or 3.1% from the nine months ended
September 30, 2001. The 2002 costs include approximately $2.6 million of
additional depreciation resulting from the fair value adjustments arising from
the Panavision Acquisition, offset by the impact of cost reductions achieved in
2002.
LIGHTING RENTAL OPERATIONS
Lighting rental revenue for the nine months ended September 30, 2002 was
$24.7 million, an increase of $1.3 million, or 5.6%, compared to the nine months
ended September 30, 2001. The increase reflects strong feature revenue in the
U.K. and Australia.
Cost of lighting rental for the nine months ended September 30, 2002 was
$19.9 million, an increase of $0.4 million, or 2.1%, from the nine months ended
September 30, 2001.
SALES AND OTHER
Sales and other revenue in the nine months ended September 30, 2002 was
$27.9 million, an increase of $2.6 million, or 10.3%, from the nine months ended
September 30, 2001. The increase primarily reflects the revenue generated by
EFILM, which Panavision began operating in the third quarter of 2001.
Cost of sales and other for the nine months ended September 30, 2002 were
$17.1 million, an increase of $3.2 million, or 23.0%, as compared to the nine
months ended September 30, 2001. The increase is primarily due to additional
costs associated with EFILM's operation.
OPERATING COSTS
Selling, general and administrative expenses for the nine months ended
September 30, 2002 were $40.0 million, a decrease of $5.1 million, or 12.0%, as
compared to the nine months ended September 30, 2001. The decrease was primarily
due to worldwide cost reductions of $3.0 million and the elimination of
approximately $5.7 million of goodwill and tradename amortization resulting from
Panavision's adoption of SFAS No. 142 on January 1, 2002. The reductions were
offset by approximately $3.0 million of additional costs associated with EFILM's
operation and $0.6 million of compensation charges recorded in Canada.
Research and development expenses for the nine months ended September 30,
2002 were $3.2 million, a decrease of $1.1 million, or 25.6%, from the nine
months ended September 30, 2001. The decrease was primarily due to cost control
programs, including headcount reductions.
INTEREST, TAXES AND OTHER
Net interest expense for the nine months ended September 30, 2002 was
$25.1 million, a decrease of $7.8 million, or 23.7%, as compared to the nine
months ended September 30, 2001. The decrease primarily reflects lower interest
rates and debt levels as compared to the nine months ended September 30, 2001.
Foreign exchange gain for the nine months ended September 30, 2002 was
$0.7 million, as compared to a $0.3 million loss for the nine months ended
September 30, 2001. This change is primarily due to the effect of the
fluctuating British Pound rate on U.S. Dollar denominated payable balances held
in the U.K.
Refinancing expense of $4.5 million for the nine months ended September
30, 2002 reflects costs incurred in connection with Panavision's discontinued
offering of secured notes and bank refinancing. These costs include $2.2 million
of charges, primarily consisting of professional fees incurred in connection
with Panavision's refinancing
21
M & F WORLDWIDE CORP. AND SUBSIDIARIES
and lenders' fees of $2.9 million paid in accordance with the March Amendment.
Such charges were offset by a gain of approximately $0.6 million associated with
the $37.7 million principal amount at maturity of Existing Notes that were
cancelled on June 28, 2002.
The tax benefit was $3.7 million for the nine months ended September 30,
2002, as compared to a tax benefit of $4.0 million for the nine months ended
September 30, 2001. This change is due to domestic operations, which generated
an income tax benefit of $6.5 million in the nine months ended September 30,
2002, as compared to $6.8 million in the nine months ended September 30, 2001.
Additionally, Panavision's foreign operations generated an income tax provision
of $2.8 million in the nine months ended September 30, 2002, unchanged as
compared to the nine months ended September 30, 2001.
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities during the first
nine months of 2002 was $38.2 million compared to $80.6 million in the first
nine months of 2001. The decrease in net cash provided by operating activities
of $42.4 million was primarily caused by the net cash retained in connection
with the termination of a pension plan of $33.1 million in 2001, and increases
in accounts receivable and prepaid expenses in the 2002 period.
Net cash used in investing activities was $18.2 million for the nine
month period ended September 30, 2002 and $92.7 million for the nine month
period ended September 30, 2001. The decrease was primarily due to the
acquisition of Panavision in 2001 offset in part by higher capital expenditures
in 2002 primarily at Panavision.
Net cash provided by financing activities totaled $0.7 million in the
nine month period ended September 30, 2002 primarily as a result of the net
repayment of debt of $12.4 million offset by cash received for the issuance of
$10.0 million of Panavision Series B Preferred Stock and the investment of $5.0
million in EFILM. Cash provided by financing activities of $35.9 million in the
nine month period ended September 30, 2001 primarily resulted from the
refinancing of Mafco Worldwide's credit agreement.
As of September 30, 2002 debt outstanding was comprised of the following
(dollars in millions):
Panavision
Credit agreement
Term loans $ 180.8
Revolving credit facility 99.2
Notes 146.3
--------
426.3
Mafco Worldwide
Amended Credit Agreement - term loan 68.2
Other 0.9
--------
$ 495.4
========
Current maturities under Mafco Worldwide's and Panavision's credit
agreements total $309.5 million. See below for the explanation of the increase
in current maturities due to the uncertainty concerning Panavision's ability to
comply with the financial covenants under their Existing Credit Agreement. Upon
consummation of the Settlement, the Company will record the sale of Panavision
and cease to consolidate Panavision's debt.
On March 15, 2002, Panavision amended its Existing Credit Agreement to,
among other things, revise certain of the financial tests and required ratios
that Panavision must maintain through December 31, 2002. As required under the
amended Existing Credit Agreement, on June 28, 2002, Panavision (1) acquired
from Holdings $10.0 million in cash and $37.7 million principal amount at
maturity of Existing Notes in exchange for 49,199 shares of Panavision's Series
B Cumulative Pay-in-Kind Preferred Stock, par value $0.01 per share, (2)
cancelled the $37.7 million principal amount at maturity of Existing Notes
promptly after receiving them and (3) paid the lenders a fee equal to 1% of the
amount of the balance of the Existing Credit Agreement.
22
M & F WORLDWIDE CORP. AND SUBSIDIARIES
On April 1, 2002, Panavision entered into an agreement with certain
holders of its Existing Notes that gave Panavision the option to acquire from
these holders Existing Notes with a principal amount at maturity of $78.4
million at a price of $650 per $1,000 of principal amount. On June 28, 2002
Panavision assigned this option to Holdings. Holdings exercised the option on
July 3, 2002.
On June 27, 2002, the Company entered into an agreement with Holdings
that gives the Company the option (the "Holdings Option"), in whole but not in
part, of (1) acquiring the Panavision Series B Preferred Stock issued to
Holdings at Holdings' cost of the Existing Notes with a principal amount at
maturity of $37.7 million plus a 10% cost of carry plus the liquidation
preference value of the shares issued for the $10.0 million equity contribution
made by Holdings, and (2) acquiring the Existing Notes with a principal amount
at maturity of $78.4 million acquired by Holdings at Holdings' cost, including
an option fee of $5.5 million, plus a 10% cost of carry. The Holdings Option
gives the Company the right to exercise the Holdings Option during the period
commencing upon final adjudication of the shareholder litigation (see Note 10 to
the condensed consolidated financial statements) and ending on the date that is
twelve months after such final adjudication, provided that the Company
beneficially owns at least 66-2/3% of the voting securities of Panavision
currently owned by it. Upon consummation of the Settlement, the Company and
Holdings will cancel the Holdings Option.
In April 2002, Panavision postponed an offering of Secured Notes it had
previously announced and also deferred its plans to replace its Existing Credit
Agreement with a new credit agreement. As a result, Panavision expensed all
costs primarily legal, accounting, advisory and lenders' fees in connection with
the refinancing. Such costs are reflected in refinancing expense in the
accompanying condensed consolidated financial statements.
On June 14, 2002, Panavision amended its Existing Credit Agreement to,
among other things, allow Panavision to (1) acquire the shares of Las Palmas
from M & F Worldwide in exchange for the Las Palmas Note, (2) contribute the
assets of Las Palmas and certain other assets owned by Panavision to the
newly-formed EFILM in exchange for 80% of its membership interests and (3) allow
Deluxe Laboratories, Inc. to purchase 20% of the EFILM membership interests for
$5.0 million. In addition certain covenants were amended.
At the closing of the Panavision Acquisition, Ronald O. Perelman,
Holdings' sole shareholder, delivered a letter to the Company agreeing that, if
the Company determines in its good faith and reasonable judgment that Panavision
is unable to make required payments of principal or interest under its Existing
Credit Agreement or its Existing Notes, he or corporations under his control
will provide such financial support to the Company as may be required by
Panavision in connection with such payments of principal and interest. Pursuant
to the Settlement discussed in Notes 1 and 10 to the accompanying condensed
consolidated financial statements, this letter agreement will be terminated.
Effective September 30, 2002, Panavision amended the Existing Credit
Agreement to, among other things, reduce the minimum EBITDA Panavision was
required to achieve for the four fiscal quarters ending September 30, 2002 (the
"Amendment"). This provision of the Amendment will expire on March 28, 2003.
As a consequence of the Amendment, Panavision is in compliance with the
financial covenants under the Existing Credit Agreement for the period ending
September 30, 2002. It is unlikely, however, that Panavision will achieve the
required EBITDA for the year ending December 31, 2002. As a result, and in
accordance with the requirements of generally accepted accounting principles,
the debt outstanding under the Existing Credit Agreement has been reclassified
as a current liability on the Company's consolidated balance sheet. If
Panavision were unable to meet the minimum EBITDA for the year ending December
31, 2002, then in such event as early as January 2003 or, were Panavision
successful in achieving the minimum EBITDA, then upon expiration of the
Amendment on March 28, 2003, Panavision will be required to seek additional
waivers or amendments of the covenants under the Existing Credit Agreement or,
in the absence of such waivers or amendments, obtain other sources of financing
were the lenders under the Existing Credit Agreement unwilling to permit the
debt to remain outstanding. Also, were the lenders unwilling to permit the debt
under the Existing Credit Agreement to remain outstanding, then the holders of
the Existing Notes would have a similar right to demand repayment. Although the
lenders under the Existing Credit Agreement have accommodated Panavision to date
and Panavision believes that the lenders will continue to do so, there can be
no assurance that they will continue to do so nor can there be any assurance
that Panavision could successfully effect any alternate financing.
23
M & F WORLDWIDE CORP. AND SUBSIDIARIES
The Amendment also provides that it is an event of default if (i) by
February 1, 2003, an affilite of Panavision fails to make a cash equity
contribution to Panavision in the amount of the interest due February 1, 2003 on
Existing Notes held by affiliates of Panavision on that date or (ii) by March
28, 2003, the Existing Credit Agreement is not refinanced or the debt of
Panavision reduced, in either case, by an amount acceptable to the lenders under
the Existing Credit Agreement, or an affiliate of Panavision fails to make a
cash equity contribution to Panavision in the amount of the interest which was
due on February 1, 2003 on Existing Notes held by non-affiliates of Panavision
on that date. Holdings has agreed to make, on appropriate terms, the required
cash equity contributions to Panavision.
Although there can be no assurance, Panavision expects that cash flows
from operations, borrowings under the Existing Credit Agreement, cash equity
contributions from Holdings and advances from affiliates will be sufficient to
enable Panavision to meet its anticipated cash requirements through March 28,
2003, including for operating expenses, working capital, capital expenditures,
further investment in EFILM, LLC and scheduled debt service requirements.
Mafco Worldwide intends to use cash provided by operating activities to
pay down existing debt, to make additional capital expenditures, and to purchase
inventory of licorice root and licorice extract in order to take advantage of
market conditions that will benefit future operations. Management believes that
Mafco Worldwide's current inventories of $52.8 million are adequate to meet all
customer requirements for the foreseeable future.
In connection with the Settlement, Pneumo Abex amended its credit
agreement on October 28, 2002, so that the lenders will: (a) release all liens
in their favor on the Panavision shares held by the Company and the Existing
Notes held by Pneumo Abex and (b) release PVI Acquisition Corporation, a wholly
owned subsidiary of the Company, from all of its obligations and liabilities
under a guarantee and collateral agreement to the credit agreement. In exchange,
the parties agreed to: (a) an increase, in the annual interest rate, of 0.5% (b)
a mandatory prepayment of $4.4 million, (c) a reduction in the revolving
commitments by $5.0 million and (d) an amendment fee of approximately $0.3
million. This amendment will be effective on the date when the Settlement is
consummated. These changes will have no material effect on Pneumo Abex's ability
to conduct operations in the future.
M & F Worldwide is a holding company whose only material asset is its
ownership interest in its subsidiaries. M & F Worldwide's principal business
operations are conducted by its subsidiaries, and M & F Worldwide has no
operations of its own. Accordingly, M & F Worldwide's only source of cash to pay
its obligations is expected to be distributions with respect to its ownership
interest in its subsidiaries. There can be no assurance that M & F Worldwide's
subsidiaries will generate sufficient cash flow to pay dividends or distribute
funds to M & F Worldwide or that applicable state law and contractual
restrictions, including negative covenants contained in the debt instruments of
such subsidiaries, will permit such dividends or distributions. The Company is
considering various alternatives for the application of the proceeds to be
received upon consummation of the Settlement.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the period ended September 30,
2002, as well as certain of the Company's other public documents and statements
and oral statements, contains forward-looking statements that reflect
management's current assumptions and estimates of future performance and
economic conditions. Such statements are made in reliance upon safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The Company
cautions investors that any forward-looking statements are subject to risks and
uncertainties that may cause actual results and future trends to differ
materially from those projected, stated, or implied by the forward-looking
statements. In addition, the Company encourages investors to read the summary of
the Company's critical accounting policies in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001 under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
In addition to factors described in the Company's Securities and Exchange
Commission filings and other public documents, the following factors could cause
the Company's actual results to differ materially from those expressed in any
forward-looking statements made by the Company: (a) a significant reduction in
the number of feature film, commercial and series television productions; (b)
competitive pressures arising from changes in technology, customer requirements
and industry standards; (c) an increase in expenses related to new product
initiatives and product development efforts; (d) unfavorable foreign currency
fluctuations; (e) significant increases in interest
24
M & F WORLDWIDE CORP. AND SUBSIDIARIES
rates; (f) economic, climatic or political conditions in countries in which the
Company sources licorice root; (g) economic, climatic or political conditions
that have an impact on the worldwide tobacco industry or on the consumption of
tobacco products in which licorice extract is used; (h) additional government
regulation of tobacco products, tobacco industry litigation or enactment of new
or increased taxes on cigarettes or other tobacco products, to the extent any of
the foregoing curtail growth in or actually reduce consumption of tobacco
products in which licorice extract is used; (i) the failure of third parties to
make full and timely payment to the Company for environmental, asbestos, tax and
other matters for which the Company is entitled to indemnification; (j) any
inability to obtain indemnification for any significant group of asbestos
related claims pending against the Company; (k) a substantially adverse result
from any appeal of the Settlement approved by the Chancery Court; (l) lower than
expected cash flows from operations; or (m) the inability to secure capital
contributions or loans from affiliates, refinance its indebtedness, or sell its
equity securities. The Company assumes no responsibility to update the
forward-looking statements contained in this Form 10-Q filing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to market risk both as a result of changing
interest rates and movements in foreign currency exchange rates. The Company
manages its exposure to these market risks through its regular operating and
financing activities. Item 7A of the Company's Annual Report on Form 10-K for
the year ended December 31, 2001 presents quantitative and qualitative
disclosures about market risk as of December 31, 2001. There have been no
material changes in this disclosure as of September 30, 2002.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES:
The Company's Chief Executive Officer and Chief Financial Officer (who
are its principal executive officer and principal financial officer,
respectively) have within 90 days prior to the filing date of this report (the
"Evaluation Date"), evaluated the Company's disclosure controls and procedures
(as defined in Exchange Act Rule 13a-14(c) and 15d-14(c)). Based upon such
evaluation the Company has concluded that such disclosure controls and
procedures are generally effective to ensure that information required to be
disclosed by the Company in the reports filed or submitted by it under the
Securities Exchange Act of 1934, as amended is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and that such
information is accumulated and communicated to management including the Chief
Executive Officer and Chief Financial Officer as appropriate to allow timely
decisions regarding disclosure.
The Company's Chief Executive Officer and Chief Financial Officer have
determined that there were no significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the Evaluation Date.
25
M & F WORLDWIDE CORP. AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
CORPORATE INDEMNIFICATION MATTERS
Prior to 1988, a former subsidiary of the Company manufactured certain
asbestos-containing friction products. Pneumo Abex has been named, typically
along with 10 to as many as 100 or more other companies, as a defendant in
various personal injury lawsuits claiming damages relating to exposure to
asbestos. Pursuant to indemnification agreements, PepsiAmericas, Inc., formerly
known as Whitman Corporation (the "Original Indemnitor"), has retained ultimate
responsibility for asbestos-related claims made through August 1998 and for
certain asbestos-related claims asserted thereafter. In connection with the sale
by Abex in December 1994 of its Friction Products Division, a subsidiary (the
"Second Indemnitor") of Cooper Industries, Inc. (the "Indemnity Guarantor")
assumed responsibility for substantially all of the asbestos-related claims made
after August 1998. Federal-Mogul Corporation purchased the Second Indemnitor in
October 1998. In October 2001, the Second Indemnitor filed a petition under
Chapter 11 of the U.S. Bankruptcy Code and stopped performing its indemnity
obligations to the Company. Performance of the Second Indemnitor's indemnity
obligation is guaranteed by the Indemnity Guarantor. Following the bankruptcy
filing of the Second Indemnitor, the Company confirmed that the Indemnity
Guarantor will fulfill the Second Indemnitor's indemnity obligations to the
extent that they are no longer being performed by the Second Indemnitor. During
the third quarter of 2002, the Indemnity Guarantor repaid the Company, following
an arbitration between the Company and the Indemnity Guarantor, $3.5 million
that the Company had advanced for indemnified matters.
Pneumo Abex's former subsidiary maintained product liability insurance
covering substantially all of the period during which asbestos-containing
products were manufactured. There has been litigation since 1982 concerning the
availability of this coverage, and there can be no assurance as to the outcome.
Nonetheless, as a result of rulings in the litigation, settlements and other
coverage agreements with carriers, and payments by the Original Indemnitor, the
Second Indemnitor and the Indemnity Guarantor pursuant to their indemnities,
Pneumo Abex is receiving reimbursement in full each month for its monthly
expenditures for asbestos-related claims. Pneumo Abex is unable to forecast
either the number of future asbestos-related claimants or the amount of future
defense and settlement costs associated with present or future asbestos-related
claims.
Various legal proceedings, claims and investigations are pending
against M & F Worldwide and Pneumo Abex, including those relating to commercial
transactions, product liability, safety and health matters and other matters. M
& F Worldwide and Pneumo Abex are involved in various stages of legal
proceedings, claims, investigations and cleanup relating to environmental or
natural resource matters, some of which relate to waste disposal sites. Most of
these matters are covered by insurance, subject to deductibles and maximum
limits, and by third-party indemnities.
The former Aerospace business of the Company formerly sold certain of
its aerospace products to the U.S. Government or to private contractors for the
U.S. Government. Certain claims for allegedly defective pricing made by the U.S.
Government with respect to certain of these aerospace product sales were
retained by Pneumo Abex in the Aerospace sale and remain outstanding. In each
case Pneumo Abex contests the allegations made by the U.S. Government and has
been attempting to resolve these matters without litigation.
The Company believes that the outcome of such pending legal proceedings
in the aggregate will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
OTHER LITIGATION MATTERS
In November 2000, five purported derivative and/or class actions were
filed in New Castle County, Delaware Chancery Court against the Company, its
board of directors and, in one case, Holdings and MCG. These actions, as well as
a similar action filed in New York County, New York Supreme Court, challenged as
unfair to the Company's public shareholders the original proposal to sell to the
Company the stake in Panavision then indirectly owned by Holdings. Following
consummation of the Panavision transaction in April 2001, the five Delaware
actions were consolidated under the caption In re M & F Worldwide Corp.
Shareholders Litigation, C.A. No. 18502-NC (the "Consolidated Action"), the
operative complaint in the Consolidated Action was amended to challenge the
26
M & F WORLDWIDE CORP. AND SUBSIDIARIES
transaction as consummated, and another shareholder filed a related action in
the Delaware Chancery Court, captioned Vannini v. Perelman, et al., C.A. No.
18850-NC. The operative complaints sought, among other things, rescission of the
transaction, damages, a declaratory judgment that the transaction was unfair as
to process and as to price, and plaintiffs' costs and attorneys' fees. The
Company and the parties to the Vannini action settled that litigation, pursuant
to which, among other things, the Company acquired one million shares of Company
common stock held by the plaintiff, the plaintiff dismissed his claim with
prejudice, and the Company agreed to pay to plaintiff $10.0 million plus up to
$1.0 million for reimbursement of his legal costs. The Company recorded treasury
stock of $6.5 million and shareholder litigation settlement expense of $4.5
million in 2001 in connection with the Vannini settlement. After the Vannini
settlement, plaintiffs in the Consolidated Action commenced a separate
derivative action in the Delaware Chancery Court against the Company's directors
and Holdings challenging the settlement as a breach of fiduciary duty.
In January 2002, during the trial of the Consolidated Action, the
defendants and certain of the plaintiffs reached an agreement in principle,
later reduced to a definitive written agreement, concerning the settlement and
ultimate dismissal of the Consolidated Action and the action challenging the
Vannini settlement. At a hearing before the Chancery Court on May 13, 2002, the
Court declined to approve the settlement, but indicated a willingness to
consider any revised proposal. After the trial resumed in July 2002, the parties
reached a second settlement (the "Settlement"). Under the terms of the
Settlement, approved by the Chancery Court, Holdings will (a) acquire (1) the
shares of Panavision Common Stock that the Company purchased in April 2001, (2)
the shares of Panavision Series A Preferred Stock that the Company acquired in
December 2001, (3) the Existing Notes that Pneumo Abex acquired in November
2001, and (4) the Las Palmas Note, and (b) deliver to the Company $90.1 million
in cash and all of the shares of Company's Common Stock and Series B Preferred
Stock that Holdings has acquired since April 2001. In addition, all agreements
entered into in connection with the Panavision Acquisition and the December 2001
issuance of Series B Preferred Stock will be terminated.
In a separate agreement contemporaneous with the Settlement, the
Company's insurance carrier agreed to reimburse $2.0 million of the amount that
the Company paid in connection with the Vannini settlement, and certain
attorneys' fees and expenses awarded by the court in connection with the
Settlement.
The Company has incurred various legal and related costs in connection
with the defense of the lawsuits. As of September 30, 2002, the Company has a
receivable of $2.5 million, including the $2.0 million related to the Vannini
settlement, reflected in prepaid expenses and other assets, in respect of costs
that the Company expects will be reimbursed by insurance. The Company had
unreimbursed expenses of $3.3 million which are included in the shareholder
litigation settlement, net in the accompanying condensed consolidated statements
of operations.
In connection with the Settlement, Pneumo Abex amended its credit
agreement on October 28, 2002, so that the lenders will: (a) release all liens
in their favor on the Panavision shares held by the Company and the Panavision
Notes held by Pneumo Abex and (b) release PVI Acquisition Corporation, a wholly
owned subsidiary of the Company, from all of its obligations and liabilities
under a guarantee and collateral agreement to the credit agreement. In exchange,
the parties agreed to: (a) an increase, in the annual interest rate, of 0.5% (b)
a mandatory prepayment of $4.4 million, (c) a reduction in the revolving
commitments by $5.0 million and (d) an amendment fee of approximately $0.3
million. This amendment will be effective on the date when the Settlement is
consummated.
During the third quarter of 2002 the Company's indirect wholly owned
French subsidiary, (the "Indirect Subsidiary"), received official notice from
the French tax administration that certain interest payments made on a note
payable to the Company would not be allowed as deductions in determining French
income taxes for 1996, 1997 and 1998 and have assessed the Indirect Subsidiary
approximately $1.8 million for the taxes, interest and penalties. The Indirect
Subsidiary does not agree with the tax authorities and believes that their tax
returns are correct as filed. The Indirect Subsidiary is in the process of
appealing the assessment. As part of their appeal, the Indirect Subsidiary will
be required to obtain bank guarantees in favor of the French tax administration
in the amount of $1.4 million. The Company believes that the Indirect
Subsidiary's position is correct under French tax regulations and that the
Indirect Subsidiary will prevail in any future negotiation or litigation. The
Indirect Subsidiary has taken an interest expense deduction on its French tax
return for each completed tax year subsequent to 1998 in an amount substantially
the same as the prior years.
27
M & F WORLDWIDE CORP. AND SUBSIDIARIES
There have been no other material changes in ongoing legal proceedings
during the three month period ended September 30, 2002.
ITEM 2. CHANGES IN SECURITIES
There were no changes in securities during the three-month period ended
September 30, 2002.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no events of default upon senior securities during the three
month period ended September 30, 2002.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to Security Holders during the three
month period ended September 30, 2002.
ITEM 5. OTHER INFORMATION
No additional information need be presented.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.4 First Amendment, dated as of October 28, 2002, to the Amended and
Restated Credit Agreement, dated as of April 17, 2001, among Flavors
Holdings Inc., a Delaware corporation, Pneumo Abex Corporation, a
Delaware corporation, the several banks and other financial
institutions or entities from time to time parties thereto, BNP
Paribas, as documentation agent, and JPMorgan Chase Bank, as paying
agent.
99.1 Certification of Howard Gittis, Chief Executive Officer, dated November
14, 2002, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Todd J. Slotkin, Chief Financial Officer, dated
November 14, 2002, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
Form 8-K filed on July 29, 2002.
Form 8-K filed on August 14, 2002.
28
M & F WORLDWIDE CORP. AND SUBSIDIARIES
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
M & F WORLDWIDE CORP.
Date: November 14, 2002 By: /S/ Todd J. Slotkin
------------------------- ------------------------------
Todd J. Slotkin
Executive Vice President and Chief
Financial Officer
Principal Financial Officer
Date: November 14, 2002 By: /S/ Peter W. Grace
------------------------- -----------------------------
Peter W. Grace
Principal Accounting Officer
29
M & F WORLDWIDE CORP. AND SUBSIDIARIES
CERTIFICATIONS
I, Howard Gittis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of M&F Worldwide
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 14, 2002
/S/ Howard Gittis
------------------------------
Name: Howard Gittis
Title: Chief Executive Officer
30
M & F WORLDWIDE CORP. AND SUBSIDIARIES
I, Todd J. Slotkin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of M&F Worldwide
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 14, 2002
/S/ Todd J. Slotkin
------------------------------
Name: Todd J. Slotkin
Title: Chief Financial Officer
31